Sovereign Immunity Excuses University of Florida from IPR Challenge

by Dennis Crouch

As public universities continue to obtain more patents, issues of sovereign immunity continue to arise. In a recent decision, the Patent Trial and Appeal Board (PTAB) dismissed a trio of inter partes review proceedings against the University of Florida based upon its claim of sovereign immunity.[1]

The 11th Amendment to the US Constitution limited the “Judicial power of the United States” so that it does not “extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State.”[2] Although the text of the amendment appear to include several important limitations that might exclude an administrative action (“judicial power; “suit in law or equity”), the Supreme Court has broadly interpreted the statute precluding many adjudicative administrative proceedings.  For anyone who is not an American lawyer, you may need to pause here to recognize that each of the 50 American states are treated as sovereign governments and, although the Federal Government sets the “supreme law of the land,” its powers are limited by the U.S. constitution and federalist structure.

The Supreme Court has interpreted this amendment to encompass a broad principle of sovereign immunity, whereby the Eleventh Amendment limits not only the judicial authority of the federal courts to subject a state to an unconsented suit, but also precludes certain adjudicative administrative proceedings, depending on the nature of those proceedings, from adjudicating complaints filed by a private party.  Following Supreme Court precedent from other areas of law, the Federal Circuit held in Vas-Cath[3] that Missouri’s sovereign immunity allowed it to avoid an interference proceeding.

The petitioner Covidien argued that the PTAB should think of the IPR as an in rem action directed at the patent rather than at the patent owner.  However, the PTAB rejected that argument – finding that the procedural elements of inter partes reviews and estoppel provisions make it look much like contested litigation – the very thing protected by the 11th Amendment.

The Panel:

On the whole, considering the nature of inter partes review and civil litigation, we conclude that the considerable resemblance between the two is sufficient to implicate the immunity afforded to the States by the Eleventh Amendment. Although there are distinctions, such as in the scope of discovery, we observe that there is no requirement that the two types of proceedings be identical for sovereign immunity to apply to an administrative proceeding. Further, we note that there are several similarities between civil litigation and inter partes review that are not unlike those compared in Vas-Cath for interferences.

[sovereign-immunity-dismissals]

Outcome here – Dismissed before Institution based on Sovereign Immunity of the patentee.  Moving forward it will be interesting to see whether the Federal Circuit is willing to hear an appeal or instead apply the standard law that institution decisions are not subject to appeal.

The dispute between the parties extends back to a license agreement between UFL and Medtronic/Covidien of the patent at issue. UFL exerted its right to audit the books, but was refused by Medtronic.  UFL then sued in state court on the contract.  Medtronic counterclaimed for DJ of invalidity/noninfringement and removed the case to federal court on the patent claims and on diversity grounds.  The district court however remanded back to state court on sovereign immunity grounds.  That remand is now on appeal at the Federal Circuit, although the court has just issued a show-cause – asking whether the case should be transferred to the 11th Circuit.  Under the AIA-revised statute, cases go to the Federal Circuit if either the civil action “arises under” US patent law or a “compulsory counterclaim” arises under patent law.  Here, it is clear that the counterclaim is a patent claim, but the big question is whether it is “compulsory” – normally defined as one that “arises out of the transaction or occurrence that is the subject matter of the opposing party’s claim.”[4]

Of interest though, in the order to show cause, the court suggests that it might keep the case in the “interest of justice” rather than transfer it. [5][federalcircuitjurisdictionorder]

= = = =

[1] See Covidien LP v. University of Florida Research Foundation Inc., Case Nos. IPR 2016-01274; -01275, and -01276 (PTAB January 25, 2017).

[2] U.S. CONST. amend. XI.

[3] Vas-Cath, Inc. v. Curators of Univ. of Missouri, 473 F.3d 1376 (Fed. Cir. 2007).

[4] Fed. R. Civ. P. 13(a)(1)(A).

[5] 28 U.S.C. § 1631.

 

About Dennis Crouch

Law Professor at the University of Missouri School of Law. Co-director of the Center for Intellectual Property and Entrepreneurship.

65 thoughts on “Sovereign Immunity Excuses University of Florida from IPR Challenge

  1. The 11th amendment applies were private party invokes the power of a court to coercively adjudicate against a state without its consent. The principal argument of the petitioner was that the action against the patent was basically in rem – somewhat like the bankruptcy courts where rights in the res are adjudicated and where the Supreme Court has previously held the 11th amendment does not apply. But the PTAB panel held that the result of the adjudication would be the cancellation of a claim in the patent and that this would adversely affect the patent owner.

    Thus, the PTAB recognized that the adjudication of validity of a patent involves more than simply the adjudication of the validity of a public right, but a coercive suit against the owner of the patent because the result of the litigation is the revocation of the patent, the property of the patent owner. As in FMC, the Supreme Court case relied upon by the PTAB, the state cannot simply stand by and wait until an action is filed in court against it trying to enforce the order of the PTAB where it can there assert sovereign immunity. The result of the IPR is the cancellation of the state’s patent. No subsequent lawsuit against it is required.

    The PTAB demonstrates that the patent owner is personally adversely affected by an IPR because his property in the patent is at stake. Historically, before 1790, the validity of patents were adjudicated in the courts and the patent owner had a right to have disputed facts tried to a jury. Since everybody agrees that the IPR is a court proceeding by a private party against the patent owner involving patent validity, the Seventh Amendment would seem to apply. (I also think that standing should be required.)

    Prediction, one way or the other, the Supreme Court will eventually have to decide whether the Seventh Amendment applies to patent validity, and then whether an administrative tribunal can constitutionally revoke a patent for invalidity without violating the Seventh Amendment. As others have reported, the Supreme Court apparently denied certiorari in MCM Portfolio LLC v. Hewlett-Packard, and in Cooper v. Lee, because the court was internally split on this issue (Stern v. Marshall was 5-4, with Scalia in the majority.) With a new conservative judge appointed to the court, the court may and probably will take more interest in this issue sooner rather than later.

    (Also, the panel seems somewhat clueless as to why the Federal Circuit has repeatedly held that patent to be a public right – that it is a creature of statute. They continued to repeat the idea that a patent is a public right because validity is a public concern. That is not the holding of the Federal Circuit either in Patlex or in MCM.)

    1. Still waiting for you Ned to show step one in your appreciation of property law basics…

      (You posting a link does not cut it)

        1. Nothing here, anony.

          However,

          Ned has pulled one of his legendary “disappear when the discussion does not fit his agenda” tricks – yet again – on the topic of “patents are property” on another thread.

          This was the first thread that he has resurfaced with the beginnings of his meme, and the “runaway” was still fresh in my mind.

          Would really really really like if he paid attention and followed the thought process that I have put on the table time and again.

  2. President Donald Trump will begin work Friday dismantling the financial regulations enacted after the 2008 economic crisis, hours after the first major economic report of his administration is released. [Among other directives, the order forces the delay of the implementation of a rule that] required retirement advisers to act in their clients’ best interests.

    Cuz regulationz is teh bad. Just ask the patent maximalists! They ran to the voting both to pull the lever for this path 0l0 gical lying s0 ci 0 path. And they’re still cheering him on.

    But we shouldn’t point this out. So unfair.

  3. For anyone who is not an American lawyer, you may need to pause here to recognize that each of the 50 American states are treated as sovereign governments

    Which is also why the new Federal cause of action regarding trade secrets is so interesting.

    Quite quietly, that Federal Action added a layer in addition to (and in some ways supplanting) the sovereignty of the States.

    While the actors involved are not likely to be States themselves, which will attenuate the soveriegnty angle somewhat, individuals within the “sovereign states” will not be so lucky.

  4. It will be interesting to see if this principle applies to other entities given sovereign immunity such as foreign governments, the USA itself, domestic dependent nations, etc.

  5. IPRs aren’t going anywhere.

    Subject matter eligiblity isn’t going anywhere (childish d.o.a. attempts to rewrite the statute notwithstanding).

    I have to say it’s incredibly amusing to watch the rightwing maximalists obsess over this stuff while the men t@lly ill s 0 ci0 path they elected for President is busy destroying the country.

    Has the inevitable war started yet? That’ll be great news for patents.

    1. (childish d.o.a. attempts to rewrite the statute notwithstanding)

      An interesting comment, seeing as the only rewrites so far have been by the Court…

      😉

  6. But . . . but, a patent is a public right! This case is so awesome. Illustrating yet again the absurdity and constitutional anomaly created by the IPR construct. Rights for me, but not for thee. Good on you Florida.

    BTW dearest Board, since you profess to be a Court – why no comity with the actual courts? Too hard to wrap your collective heads around the ‘full faith and credit’ clause? And since the 11th is viable, why not the 7th? What? Congress can’t conjure way 11th? or is it just the 7th? Meh, maybe I am too hard on the Board, it not like they are going to declare themselves usurpers and put themselves out of a job.

    1. Right, per the CAFC in MCM the 7A doesn’t apply because “patents are public rights” but now per the PTAB the 11A does?

      The reality is that public rights law is highly complex and CAFC and PTAB are in over their heads.

      Joy and MCM were historically poorly written opinions. At least in Patlex, J. Newman made an attempt at intellectually connecting the dots.

      Still, ultimate blame lies with SCOTUS for not lending a stabilizing hand. With the pending confirmation of Gorsuch, that might change.

      1. Actually, IMHO, the silent reasoning under Patlex, is that the statute at the time provided a de novo trial in the district court, for any results of the ex-parte reexamination. In other words, the PTO was just like any other challenger to the validity of the patent – when the case was finally sued out in District Court. Granted there is a complex issue of sovereign immunity concerning the Feds, as to why that was a bench trial and not a jury trial, but nevertheless, it was a trial court of record will full Civ.R.P and Civ.R.Evid protections.

        1. De novo trial court review is only the first half of the constitutional fix.

          If a private right, then the Article I tribunal may only render advisory opinions on questions of law that then require Dist Ct enforcement and de novo review.

          Ex party reexam after Patlex fails in this regard. But for an appeal from the reexamination, the patent is invalidated. This renders it (like IPR) unconstitutional (if a private property right).

          Of course, the public rights designation fixes all separation of powers problems.

  7. Medtronic ought to sue in Florida Fifteenth District Circuit Court for a DJ of invalidity. It’ll be fun to see the state courts run a patent trial.

    That jurisdiction is what the claim of immunity is implying, after all. The state of Florida can’t argue now that the court doesn’t have jurisdiction.

    1. But only if the Sovereign waives it’s right to be sued in State court. It ain’t called sovereign immunity for nothing.

  8. The dispute between the parties extends back to a license agreement between UFL and Medtronic/Covidien of the patent at issue. UFL exerted its right to audit the books, but was refused by Medtronic. UFL then sued in state court on the contract. Medtronic counterclaimed for DJ of invalidity/noninfringement and removed the case to federal court on the patent claims and on diversity grounds.

    Seems like a waiver situation to me. You want to play the game, you give up the immunity.

  9. [S]overeign immunity derives not from the Eleventh Amendment but from the structure of the original Constitution itself.

    All-time classic “strict constructionist” stuff. Very principled!

    LOL

    1. What does the constructionist “stuff” have to do with your implied jab at “principled”…?

      It’s almost as if you do not want law to have foundation.

    2. It’s a reference to endless empty sloganeering we’re going to have to endure while listening to Gorsuch’s cheerleaders.

      The mythology is that strict contructionist/originalist types like “Scalia” have better/stronger “principles” than those OTHER judges. Of course it’s not true. It’s just different principles and, like everyone else, the adherence to “original intent” (or whatever the conservative legal meme du jour is) gets chucked to the curb (or not) depending on the desired outcome.

    3. The problem is, it is controlling law:

      sometimes referred to the States’ immunity from suit as “Eleventh Amendment immunity[,]” [that] phrase is [a] convenient shorthand but something of a misnomer, [because] the sovereign immunity of the States neither derives from, nor is limited by, the terms of the Eleventh Amendment. Rather, as the Constitution’s structure, its history, and the authoritative interpretations by this Court make clear, the States’ immunity from suit is a fundamental aspect of the sovereignty which the States enjoyed before the ratification of the Constitution, and which they retain today (either literally or by virtue of their admission into the Union upon an equal footing with the other States) except as altered by the plan of the Convention or certain constitutional Amendments.

      Alden v. Maine, 527 U.S. 706 (1999), alterations in

      1. it is controlling law:

        Thanks! I knew that but maybe some of your friend’s were confused.

        Bowers v. Hardwick was controlling law, too, until — totally unexpectedly! (LOL) — it went up in smoke.

        And then there was a few years here when folks insisted over and over and over that “controlling law” said you couldn’t look at the relationship of a claim to the prior art when determining eligibility. Of course, that was nonsense. But if there were any doubts (and, truthfully, there weren’t among reasonable people who spent more than two seconds thinking about it) there’s no question that the “controlling law” now says otherwise.

        1. There’s also plenty of articles about the 11th and sovereign immunity all over the Internet, including Wikipedia.

          I recall hearing an anecdote years ago that the “inspiration” for the expansive view of the 11th came from a clerk at one of the Justice’s Thanksgiving Dinners.

          The existing loophole in the “controlling law” (see how that works?) is represented by Central Virginia Community College v. Katz (holding that the Bankruptcy Clause of the Constitution abrogates state sovereign immunity.).

        2. Thanks for the link.

          Intersting tidbit: “JUSTICE SOUTER, with whom JUSTICE STEVENS, JUSTICE GINSBURG, and JUSTICE BREYER join, dissenting.” Alden v. Maine, 527 U.S. 706, 760 (U.S. 1999)

  10. Dismissed before Institution based on Sovereign Immunity of the patentee. Moving forward it will be interesting to see whether the Federal Circuit is willing to hear an appeal or instead apply the standard law that institution decisions are not subject to appeal.

    u m, if dismissed before institution, then the reach of the “no appeal OF the institution decision” cannot be correct ad that very state could not have been reached.

    1. …and yet another “wrinkle” that will need to be “re-calibrated” if – as anony puts it – patents really are nothing more than public rights.

      1. yet another “wrinkle” that will need to be “re-calibrated” if – as anony puts it – patents really are nothing more than public rights.

        And nobody will bat an eye because “sovereign immunity” for states who choose to participate in the patent system was always bizarre to begin with.

        1. The state of California (through its school system and the mega millions there), as well as the state of Wisconsin (WARF) will most likely “bat an eye.”

          Once again, your feelings are off.

          1. The state of California (through its school system and the mega millions there), as well as the state of Wisconsin (WARF) will most likely “bat an eye.”

            I really doubt that. California and WARF will continue to obtain, license and enforce their patents, just as they are doing now.

            1. Not so – and it should be more than apparent why not (as the wrinkles continue to unfold).

              Of course, you can pretend otherwise or ask someone to explain it all to you.

              1. ask someone to explain it all to you.

                Because gob knows you’re incapable of explaining anything to anybody.

                I spoke with someone at UC today, by the way. I asked them if changes to sovereign immunity or the public rights aspect of patents would have a noticable impact on their patent acquisition and licensing.

                They laughed. “Other factors are far more important. Where did you read that nonsense?” <— LOL

                1. I am sure that you explained what the wrinkles will do…

                  Oh wait, you don’t understand that, do you?

                  As the wrinkles unfold, the person you talked to will be singing a different song.

        1. That is what I got from that as well.

          Patent = public right = patent is not property = state cannot claim sovereign immunity as the patent is not property of a state but rather a legislative grace of the federal government.

          1. Exactly, as a ‘public right’ the patent exists solely as a creature of statute and, therefore, can be entirely governed by the administrative construct the Congress devises. But, we run into the 7th, Markman v. Westview?, at the end of that rabbit whole.

      1. In short, a public right is a cause of action that belongs exclusively to the executive and legislative branches.

        The resolution of a public right does not implicate the judicial power.

        Article III involvement is at the discretion of Congress.

        In its original, restrictive form, a public right was merely a right that existed between the government and a private actor.

        Congress can create a legal carve out under the public rights rubric for universities, pharma, etc.

        As far as I am aware, it has not done so under the AIA.

        To hold that sovereign immunity protects public universities from a public right cause of action is a constitutional absurdity – one that likely was not considered in the PTAB’s cited SCOTUS case.

        1. To hold that sovereign immunity protects public universities from [any cause of action is a constitutional absurdity

          Can we see the text of the 11th amendment again so we can all better understand this “absurdity”?

          Oh, here it is: The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State.

          Sounds to me like an exception for a Federal suit based on diversity jurisdiction, not a wholesale immunity to any suit. The Amendment was passed in 1794 to nullify Chisholm (1793) which held that diversity jurisdiction could be used haul States into Federal Court.

          1. The first three words of your quote need to be viewed in light of what anony stated.

            You kind of missed that, Malcolm.

            Oh, here is is: “The Judicial power”
            Oh, here it is: “belongs exclusively to the executive and legislative branches”

            Which branch is missing?

            This is not tough stuff.

            1. If you were trying to make an argument, you failed miserably.

              But most of what you say barely makes sense anyway so it’s not worth sweating over.

              [shrugs]

            1. The United States is a collection of sovereign entities that we call “states” – they united together to form the federal government. “One of the United States” is one of those states, such as my home state of Missouri.

              This is similar (but also quite different) to the UK structure where England is a separate and distinct from Scotland, but both are part of the UK.

              1. Got it. Now the 10th Amendment makes sense…. the States gave them selves a bunch of shared powers except what they didn’t.

                Question, which state is it that got sovereign immunity? Are we sure it’s Florida?

        2. Believe me, PTAB considered all angles before this decision. My informed speculation would be this decision is from the solicitors office and the political branch and was given to the panel. It’s pure self preservation. To ignore the 11th as this juncture, would create a SCOTUS scenario, in which the entire framework of the IPR construct would need to be squared against a separation of powers and federalism framework implicated by the purpose behind the 11th amendment. Screwing the requestor and dismissing under the 11th, allows the IPR construct to survive another day. And the longer PTO can keep the IPR construct in place, the better chance it has to survive.

          1. Regarding the “decision from the solicitor’s office and political branch” – I was actually surprised that the decision here came from these three judges – although all quite experienced – none of them are part of the PTAB/USPTO leadership structure.

            The timing of the release suggests no political involvement.

            1. True, there is no record of the political department or the solicitors office, but that does not mean they were not involved. In my informed speculation they were. In your idealistic view they were not. Fair enough. Let’s issue a FOIA and find out. Oh wait, PTO would claim privilege, so I guess we have to wait for the google-DC tell all.

Comments are closed.